Commentary on Political Economy

Thursday, 3 May 2018

From List to Weber - Capitalism. Socialism and Democracy

The growing belligerence of the Chinese Dictatorship has inspired countless theoretical approaches to the clash between Western market capitalism and the so-called command capitalism peddled by the Dictatorship itself as a more efficient and egalitarian economic system. These attempts all have some merits but most often they miss the mark totally - mainly for the reason that whilst some of the commentators have a level of expertise in a particular area (one may think of Martin Wolf in finance, or David Runciman in political studies, or even Thomas Friedman in punditry), very few of them combine the requisite depth of knowledge in the social sciences to confront what is a very complex knot of issues. Our study of Friedrich List’s “national political economy” is meant as a prolegomenon to erecting a theoretical and political bulwark against the threat that all dictatorships pose to democracy in a capitalist world economy.

In the immediate past contributions, we have shown how List’s “national system of political economy” contains an implicit contradiction in that, on one hand, List correctly exposes the economic theory expounded by the British political economists as a “cosmopolitical” framework of exchange between equal but self-interested producers as a theory that must logically result in the maximisation of their individual welfare and the aggregate production of wealth for “the nation” through specialisation; but then, on the other hand, List refuses to reject the theoretical premises of this “cosmopolitical economy”!

Pg.99: For our own part, we are far from rejecting the theory of cosmopolitical economy, as it has been perfected by the prevailing school; we are, however, of opinion that political economy, or as Say calls it 'économie publique,' should also be developed scientifically, and that it is always better to call things by their proper names than to give them significations which stand opposed to the true import of words.

List calls this system “cosmopolitical” precisely because its purely logical and abstract framework leads to the political convergence of self-interests into universal or “cosmic” interest of all market participants. But then, on the other hand, in contrast to this universally harmonious system (the Invisible Hand), List seeks to reintroduce the Political element of conflict between market participants by showing that market exchange cannot be “equal” or harmonious unless the participants are all at the same level of development - unless, that is, their ability to produce wealth is the same. Whereas cosmopolitical economics pretends that free exchange will lead automatically, as a matter of historical practice and fact, to a harmonious welfare maximisation and stable price equilibrium, in reality - List correctly objects - far from occurring in historical experience, this harmony is only the necessary logical result of the theory’s premises!

Pg.101: The popular school has assumed as being actually in existence a state of things which has yet to come into existence. It assumes the existence of a universal union and a state of perpetual peace, and deduces therefrom the great benefits of free trade. In this manner it confounds effects with causes. Among the provinces and states which are already politically united, there exists a state of perpetual peace; from this political union originates their commercial union, and it is in consequence of the perpetual peace thus maintained that the commercial union has become so beneficial to them.

It is not free trade that leads to harmonious economic development; it is rather harmonious economic development that leads to free trade. In reality, as List rightly contends, where nations differ in the level of their industrial development, free trade can only exacerbate existing inequalities and imbalances among nations - and therefore lead to further disharmony and conflict!

Pg.101: All examples which history can show are those in which the political union has led the way, and the commercial union has followed.68 Not a single instance can be adduced in which the latter has taken the lead, and the former has grown up from it. That, however, under the existing conditions of the world, the result of general free trade would not be a universal republic, but, on the contrary, a universal subjection of the less advanced nations to the supremacy of the predominant manufacturing, commercial, and naval power, is a conclusion for which the reasons are very strong and, according to our views, irrefragable.

Pg.100: The system of protection, inasmuch as it forms the only means of placing those nations which are far [101] behind in civilisation on equal terms with the one predominating nation (which, however, never received at the hands of Nature a perpetual right to a monopoly of manufacture, but which merely gained an advance over others in point of time), the system of protection regarded from this point of view appears to be the most efficient means of furthering the final union of nations, and hence also of promoting true freedom of trade. And national economy appears from this point of view to be that science which, correctly appreciating the existing interests and the individual circumstances of nations, teaches how every separate nation can be raised to that stage of industrial development in which union with other nations equally well developed, and consequently freedom of trade, can become possible and useful to it.

But how is such harmonious economic development or “political union” to be achieved so as to result in “commercial union”? The contradiction in List’s argument lies in the fact that his correct and valid distinction between wealth and ability to produce wealth means that market participants will never reach “equality” for the evident reason that the notion of ability to produce wealth implies and entails the existence of irresoluble conflict between market participants - which free trade only makes worse, as he himself admits in the quotation above. In other words, with or without free trade, where the aim of nations is to develop their individual abilities to produce wealth, and therefore to accumulate wealth, the result of this overriding focus is to sharpen and heighten economic conflict! List fails to realise that the notion of wealth itself that he has now split between the universal cosmopolitical one of the British economists - as wealth-for-consumption - and his own political conflictual notion as wealth-for-production makes the attainment of a universal peace not only dependent upon resolving the imbalances necessarily arising from accumulation but in fact it makes such resolution absolutely impossible!

List’s distinction between wealth and ability to produce wealth is badly framed because both phrases refer to wealth when in fact the first refers to use values and the other to capital accumulation.

List’s inability to perceive the opposition of these two types of wealth - use value and capitalist accumulation - prevents him from seeing the contradictory inconsistency between equal exchange of wealth and equal rates of accumulation of wealth which are impossible given that the accumulation of wealth must be antagonistic by definition because every “accumulation of wealth” by one nation must be at the expense of other nations! Indeed, it is inconfutably obvious that the entire rationale behind List’s distinction between wealth and ability to produce wealth is - precisely! - that individual nations compete with one another for ultimately military supremacy!

Whereas the cosmopolitical wealth of the British economists leads to a “static” notion of wealth whose exchange leads inexorably to a logical system of general equilibrium; List’s own notion of ability to produce wealth leads to a “dynamic” definition of wealth as capitalist accumulation that is entirely antithetical to and irreconcilable with the wealth intended by the British economists - and yet List aims to show that it is possible through restrictive trade practices for all “nations” as market participants to achieve equal levels of development leading to fair and equal market exchange or international free trade - and maybe finally to a full commercial and political union! The static analysis is logical and based on the fixing of equilibrium rates of economic exchange, whilst the dynamic analysis refers to economic development which as such is impervious to logico-mathematical equilibrium analysis. The former theory is based on Logic whilst the second is based on History (Marx and then Schumpeter).

But what does List mean by equal economic development? He says it is achieved when Nations have achieved “freedom” as an institutional setup for governing themselves. We will see that this freedom also is utopian and antagonistic under the notion of accumulation. Yet List is entirely right to maintain that in a system of capitalist accumulation the freedom of the market institutions is the only one consistent with the greatest ability to produce wealth as command over living labour - destined to overcome “socialist” or “command” economies.

To anticipate our next instalment on Max Weber, the conclusion to be drawn from this study is that in a capitalist world system both production and the exchange of production (trade) represent political power struggles between workers on one side and employers on the other. This power struggle concerns not just the distribution of production between social classes, but also what is produced and how it is produced - as well as the composition of the producers as workers or managers or indeed as investor-entrepreneurs. This struggle also plays out not just within nations but, through international trade, also between nations. There are various elements that determine what strategies are dominant or lead to politico-economic decline. One element is strategic investment in industries that are capital-intensive and technically and scientifically advanced with a highly paid and highly professional workforce. Here, relatively backward nations rely on wage suppression and high savings to obtain the hard currency and capital investment needed to support and foster strategic sector industries.

Yet this strategy inevitably runs against enormous barriers once the workforce is sufficiently emancipated to be able to challenge the inequality in incomes and conditions between industrial sectors. The emancipation of significant strata of society leads the leadership to a crossroads where it must decide between further liberalisation and democratisation or a recidivist return to authoritarian or even dictatorial and totalitarian way - but above all to imperialist ways (whether formal or informal). The latter courses will surely end up isolating the nation and lead to the flight of capital, a halt to foreign investment and to the exodus of the most creative sectors of the labour force and of the entrepreneurial class.

Apart from industrial policy, then, the effective governance of a nation - the degree of inclusion of the population through democratic processes, fairness of remuneration and income share - this becomes crucial to the eventual emergence of less advanced economies. Above all, the market mechanism plays a crucial role in (a) on the supply side, prodding productivity and innovation through regulated, legal social conflict and (b) on the demand side, directing the choice of demand to the most useful and cohesive products in terms of human needs. Market democracy, so to speak, is essential - and the principal reason behind the failure of “command economies”. It is at this cultural-political level, meeting with market mechanisms, that closed societies and economies end up losing their productive drive, regardless of how strategically gifted their state apparatuses are.

Authoritarian regimes have advantages in early stages of capitalist development in that they can instore a wage-suppressive and high-savings regimen that serves to bolster capital inflows and swell investment through balance of trade surpluses. They can mobilise internal resources and, once that process is exhausted, they can then redirect that internal repression outwards, imperialistically. But this results in ossification of the industrial asset and in emphasis on absolute exploitation. Even in Britain the phase of original accumulation was enabled by a much tighter centralised state apparatus (Tudor and Stuart administrative reforms) internally and massification of the army and navy externally (Cromwell’s New Model Army).

List neglects the role of the internal market institutions in promoting the catch-up phase because he assumes that they are universal rather than specific to capitalist society.